February 24, 2017

Banks get guidance on swap margin compliance

The Federal Reserve Board and Office of the Comptroller of the Currency have issued guidance regarding initial examinations of the agencies' supervised institutions for compliance with certain provisions of the November 2015 interagency rule that established initial and variation margin requirements for non-cleared swaps and non-cleared security-based swaps. Although the interagency final rule, which was adopted by the Fed, OCC, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, and Farm Credit Administration, became effective April 1, 2016, it included a set of delayed mandatory compliance dates.

Variation margin requirements applied to large covered swap entities--those with more than $3 trillion in outstanding swap activity--starting on Sept. 1, 2016, and apply to all other covered swap entities on March 1, 2017. Initial margin requirements are being phased in between Sept. 1, 2016, and Sept. 1, 2020.

The Fed's expectations for compliance apply to Commodity Futures Trading Commission-registered swap dealers for which the Fed is the prudential regulator. The OCC's compliance expectations were provided to national banks and federal savings associations and echo many of the expectations set forth by the Fed.